Ease of doing business index

The ease of doing business index is an index created by the World Bank Group.[1] Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights. Empirical research funded by the World Bank to justify their work show that the economic growth impact of improving these regulations is strong.[2]

"Empirical research is needed to establish the optimal level of business regulation—for example, what the duration of court procedures should be and what the optimal degree of social protection is. The indicators compiled in the Doing Business project allow such research to take place. Since the start of the project in November 2001, more than 800 academic papers have used one or more indicators constructed in Doing Business and the related background papers by its authors."[3]

The index is based on the study of laws and regulations, with the input and verification by more than 9,600 government officials, lawyers, business consultants, accountants and other professionals in 185 economies who routinely advise on or administer legal and regulatory requirements.

The ease of doing business index is meant to measure regulations directly affecting businesses and does not directly measure more general conditions such as a nation's proximity to large markets, quality of infrastructure, inflation, or crime. A nation's ranking on the index is based on the average of 10 subindices:

The Doing Business project also offers information on following datasets:

Distance to frontier - Shows the distance of each economy to the “frontier,” which represents the highest performance observed on each of the indicators across all economies included in Doing Business since each indicator was included in Doing Business

Entrepreneurship - Measures entrepreneurial activity. The data is collected directly from 130 company registrars on the number of newly registered firms over the past seven years

Good practices - Provide insights into how governments have improved the regulatory environment in the past in the areas measured by Doing Business

Transparency in business regulation - Data on the accessibility of regulatory information measures how easy it is to access fee schedules for 4 regulatory processes in the largest business city of an economy

For example, according to the Doing Business (DB) 2013 report, Canada ranked third on the first subindex "Starting a business" behind only New Zealand and Australia. In Canada there is 1 procedure required to start a business which takes on average 5 days to complete. The official cost is 0.4% of the gross national income per capita. There is no minimum capital requirement. By contrast, in Chad which ranked among the worst (181st out of 185) on this same subindex, there are 9 procedures required to start a business taking 62 days to complete. The official cost is 202% of the gross national income per capita. A minimum capital investment of 289.4% of the gross national income per capita is required.

While fewer and simpler regulations often imply higher rankings, this is not always the case. Protecting the rights of creditors and investors, as well as establishing or upgrading property and credit registries, may mean that more regulation is needed.

More than 800 academic papers have used data from the index.[4] The effect of improving regulations on economic growth is claimed to be very strong. Moving from the worst one-fourth of nations to the best one-fourth implies a 2.3 percentage point increase in annual growth.

The various sub-components of the index in themselves provide concrete suggestions for improvement. Many of them may be relatively easy to implement and uncontroversial (except perhaps among corrupt officials who may gain from onerous regulations requiring bribes to bypass). As such, the index has influenced many nations to improve their regulations. Several have explicitly targeted to reach a minimum position on the index, for example the top 25 list.

Somewhat similar annual reports are the Indices of Economic Freedom and the Global Competitiveness Report. They, especially the later, look at many more factors that affect economic growth, like inflation and infrastructure. These factors may however be more subjective and diffuse since many are measured using surveys and they may be more difficult to change quickly compared to regulations.

According to some critics, however, some of the research lacks the rigor of a coherent economic theory, contains unstated ideological biases, and too much of it is undertaken by individuals closely associated with the index and reforms, so it is not sufficiently independent to be fully credible.[5]

The Doing Business Report (DB) is a study elaborated by the World Bank Group since 2003 every year that is aimed to measure the costs to firms of business regulations in 185 countries. The study has become one of the flagship knowledge products of the World Bank Group in the field of private sector development, and is claimed to have motivated the design of several regulatory reforms in developing countries. The study presents every year a detailed analysis of costs, requirements and procedures a specific type of private firm is subject in all countries, and then, creates rankings for every country. The study is also backed up by broad communication efforts, and by creating rankings, the study spotlights countries and leaders that are promoting reforms.[6]

The DB has been widely known and used by academics, policy-makers, politicians, development experts, journalists and the business community to highlight red tape and promote reforms. As stated by the IEG study from the World Bank: “For country authorities, it sheds a bright, sometimes unflattering, light on regulatory aspects of their business climate. For business interests, it has helped to catalyze debates and dialogue about reform. For the World Bank Group, it demonstrates an ability to provide global knowledge, independent of resource transfer and conditionality. The annual exercise generates information that is relevant and useful.”.

In 2012, the study contains quantitative measures of regulations for starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, taxes, trading across borders, enforcing contracts, getting an electricity connection and closing a business. As stated in the introduction of the study, “A fundamental premise of DB is that economic activity requires good rules. These include rules that establish and clarify property rights and reduce the costs of resolving disputes, rules that increase the predictability of economic interactions and rules that provide contractual partners with core protections against abuse”.

The Doing Business Report has its origins in a paper first published in the Quarterly Journal of Economics by Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer called “The Regulation of Entry” in 2002. The paper presented data on the regulation of entry of start-up firms in 85 countries covering the number of procedures, official time and official cost that a start-up must bear before it could operate legally. The main findings of the paper were that: “Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but no better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry.” The paper became widely known because it provided quantitative evidence that entry regulation benefits politicians and bureaucrats without adding value to the private sector, or granting any additional protection.[7]

Since The Regulation of Entry was published, Simeon Djankov and Andrei Shleifer have published eight other academic studies, one for each set of indicators covered by the report.

DB is above all, a benchmark study of regulation. The process of gathering data, is first based on a survey of over 8,000 expert contributors (lawyers, accountants etc.) in 183 countries who deal with business regulations in their day-to-day work. The surveys are not a statistical sample, and the results are interpreted and cross-checked for consistency before being included in the report. Results are also validated with the relevant government before publication. DB respondents fill out written surveys and provide references to the relevant laws, regulations and fees, based on standardized case scenarios with specific assumptions, such as the business being located in the largest business city of the economy. In most indicators, the case study refers to a small domestically-owned manufacturing company - hence the direct relevance of the indicators to foreign investors and large companies is limited.

DB uses a simple averaging approach for weighting sub-indicators and calculating rankings. A detailed explanation of every indicator can be found through the DB website, and a .xls archive that simulates reforms.

As stated in the main body of the DB 2010, some caveats regarding the rankings and main information presented have to be considered by every user of the report. Mainly:

DB does not measure all aspects of the business environment that matter to firm or investors, such as the macroeconomic conditions, or the level of employment, corruption, stability or poverty, in every country.

DB does not consider the strengths and weakness neither of the global financial system, nor the financial system of every country. It also doesn’t consider the state of the finances of the government of every country.

DB does not cover all the regulation, or all the regulatory requirements. Other types of regulation such as financial market, environment, or intellectual property regulations that are relevant for the private sector are not considered.

This is why, the DB is not a complete assessment of competitiveness or of the business environment of a country, and in any case, it should only be considered as a proxy of the regulatory framework faced by the private sector in a specific country.

Main Findings

According to the DB, regulation does matter for the development of the private sectors, and several reforms are suggested across the report in order to promote the development of the private sector and enable the business environment. Some highlighted findings of the DB are:

Doing Business is a controversial study, with passionate critics and devoted fans. As recognized by the Independent Evaluation Group of the World Bank, “ Some have questioned the reliability and objectivity of its measurements. Others doubt the relevance of the issues it addresses or fear it may unduly dominate countries reform agendas at the expense of more crucial development objectives. And the attention given to the indicators may inadvertently signal that the World Bank Group values less burdensome business regulations more highly than its other strategies for poverty reduction and sustainable development.

According to Snodgrass, several limitations are present in the DB studies and have to be kept in mind when using the study:

The indicators and measures are referred to the costs, requirements and fees of doing business in the country’s largest business city; thus conditions elsewhere within the country may differ.

Transactions and fees to be cost out are very specifically defined. The costs of other types of transactions may differ.

The cost estimates come from individuals identified as expert respondents. Sometimes the estimates give by such individual may differ with other experts and with public officials. If so, the responses are cross-checked for consistency.

The estimates assume that a business knows what is required and does not waste time. Satisfying regulatory requirements will obviously take longer if the business lacks information or is unable to follow up promptly. A related point here is that DB may not understand “work-arounds”, “facilitating fees”, and “learning time” that speed or delay approvals and causes variation costs.

Published now for twelve years, the DB has originated a growing body of research on how performance on DB indicators, and reforms generated by the reports, related to specific development desirable outcomes. As stated by the DB 2010, about “405 articles have been published in peer-reviewed academic journals and about 1143 working papers are available through Google Scholar”.

The DB has acknowledged the limitation of getting data from one city to give information and a ranking valid for all the country. Several regional and sub-national studies have been carried out using the Doing Business methodology to assess variations within countries and regions across different cities, including sub-national studies for countries like Brazil, Mexico and Colombia and regional studies for the Caribbean, the Arab World, Bulgaria and other south eastern European countries. All studies are available from the DB website.

DB sometimes unintentionally has been widely used as a study to measure competitiveness. However, regulation rather than competitiveness is the main objective in the DB. Other studies that are also used to measure competitiveness and recognized as business enabling environment ranking systems are the Global Competitiveness Index, the Index of Economic Freedom, and the Global Entrepreneurship Monitor, among others.[8]

Several countries have launched reforms to improve their rankings in the DB.[citation needed] These efforts are motivated to a great scope by the fact that the World Bank Group publishes the data, and hence huge coverage by the media and the private sector is usually granted every year. Also DB highlights every year the successful reforms carried out by every country.

The World Bank Group has advised over 80 countries[when?] on reforms to regulations measured in the DB, providing technical assistance and guidance. Reform advice and DB report production are organizationally separate to avoid conflicts of interest.[citation needed]

Doing Business 2013 covers regulations measured from June 2011 through May 2012. The report marks the 10th edition of the Doing Business series. Over the past decade, these reports have recorded nearly 2,000 regulatory reforms implemented by 180 economies.

Poland was the global top improver in the past year. It enhanced the ease of doing business through four institutional or regulatory reforms, making it easier to register property, pay taxes, enforce contracts, and resolve insolvency.

Besides Poland, nine other economies are recognized as having the most improved ease of doing business across several areas of regulation as measured by the report: Sri Lanka, Ukraine, Uzbekistan, Burundi, Costa Rica, Mongolia, Greece, Serbia, and Kazakhstan.

Worldwide, 108 economies implemented 201 regulatory reforms in 2011/12 making it easier to do business as measured by Doing Business. Reform efforts globally have focused on making it easier to start a new business, increasing the efficiency of tax administration and facilitating trade across international borders. Of the 201 regulatory reforms recorded in the past year, 44% focused on these 3 policy areas alone.

Singapore topped the global ranking on the ease of doing business for the seventh consecutive year, followed by Hong Kong SAR; New Zealand; the United States; and Denmark. Georgia was a new entrant to the top 10.

Doing Business 2015 covers regulations measured from June 2013 through June 2014 in 189 economies. The report marks the 12th edition of the Doing Business series.[9]

For the first time this year, Doing Business collected data for 2 cities in 11 economies with more than 100 million inhabitants. The economies are: Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation, and the United States. The added city enables a subnational comparison and benchmarking against other large cities. Differences between cities are more common in indicators measuring the steps, time and cost to complete a standardized transaction where local agencies play a larger role, finds the report.

The Doing Business methodology regarding labor regulations was criticized by the International Trade Union Confederation because it favored flexible employment regulations.[10] In early reports, the easier it was to dismiss a worker for economic reasons in a country, the more its rankings improved. The Employing Workers index was revised in Doing Business 2008 to be in full compliance with the 188 International Labour Organization conventions. It has subsequently been removed from the rankings. The ITUC debuted the Global Rights Index in 2014 as a response to the Doing Business report.[11]

In 2008 the World Bank Group's Independent Evaluation Group, a semi-independent watchdog within the World Bank Group, published an evaluation of the Doing Business index.[12] The report, Doing Business: An Independent Evaluation, contained both praise and criticism of Doing Business. The report recommended that Doing Business be clearer about what is and is not measured, disclose changes to published data, recruit more informants, and simplify the Paying Taxes indicator.

In April 2009 the World Bank issued a note with revisions to the Employing Workers index.[13] The note explained that scoring for the Employing Workers indicator would be updated in Doing Business 2010 to give favorable scores for complying with relevant ILO conventions. The Employing Workers indicator was also removed as a guidepost for Country Policy and Institutional Assessments, which help determine resources provided to IDA countries.

A study commissioned by the Norwegian government alleges methodological weaknesses, an uncertainty in the ability of the indicators to capture the underlying business climate, and a general worry that many countries may find it easier to change their ranking in Doing Business than to change the underlying business environment.[5]

In June 2013, an independent panel appointed by the President of the World Bank and headed by Trevor Manuel of South Africa, issued a review expressing concern about the potential for the report and index to be misinterpreted, the narrowness of the indicators and information base, the data collection methodology, and the lack of peer review. It recommended that the report be retained, but that the aggregate rankings be removed and that a peer-review process be implemented (among other things). Regarding the topics of Paying Taxes and Employing Workers, it noted that "The latter has already been excluded from the report's rankings. While there is a persuasive case for paying attention to these aspects of doing business, the Bank will need to carefully consider the correct way to assess the regulation and legal environment of these areas if these indicators are to be retained." [1]

The Doing Business criteria for measuring the time needed to complete a procedure were based on some simplified assumptions: "It is assumed that the minimum time required for each procedure is 1 day. Although procedures may take place simultaneously, they cannot start on the same day (that is, simultaneous procedures start on consecutive days)". These assumptions generated some criticisms especially by countries that were able to complete one or more procedures simultaneously and could therefore be penalized in the final rank. World Bank claimed that the same criteria are applied to all economies and therefore would not produce biased results. In 2014 the possible biases in applying the DB time indicator were mathematically demonstrated in a scientific article[14] appeared on the Rivista italiana di economia demografia e statistica (Italian Review of Economics, Demography and Statistics - RIEDS). World Bank partially reviewed the criteria inserting a new assumption for telematics procedures: "each telematics procedure accounts for 0.5 day instead of one day (and telematics procedures can also take place simultaneously)".

The most recent rankings come from the "Doing Business 2017" report. Ranking of economies was introduced in the "Doing Business 2006" report.[15]

New Zealand has topped the Ease of Doing Business rankings in 2017.

Singapore has topped the Ease of Doing Business rankings in 2016.[16] Based on Singapore's experience, IDA International is collaborating with public agencies in several countries in the areas such as ICT strategy, national infocomm planning and solutions implementation that can help increase the ease of doing business.